Privatisation of previously state-owned industries and the cutting back of state investment in infrastructure projects, social welfare, and so on, has to some extent reduced the ability in any case limited of capitalist governments to influence economic trends. With the free movement of capital and commodities across frontiers, not even the major capitalist economies can, under present conditions, escape the pressures of world financial markets. In fact, the ideologists of capitalism have in the recent period elevated 'market forces' to the level of mystical forces operating above the social and political relationships through which real economic activity develops.
Some even hail 'the market' as society's ultimate - and of course benevolent - governing authority. Government is seen merely as a ringmaster maintaining the circus arena for a troupe of private performers. If they all pursue their own individual profit it is claimed , the 'hidden hand' of the market will ensure that everyone is better off as a result.
The ringmaster, of course, is expected to use his whip when necessary against the workers outside the privileged bourgeois circle. And despite the globalisation of finance and trade, capitalist governments are still charged with the task of maintaining the apparatus including the armed forces of the national states, which remain capitalism's basic territorial units. In the s and s it was no wonder that the major capitalist powers willingly accepted the dominance of the global market, when they operated as a siphon sucking profits from the whole world into the coffers of the metropolitan bourgeoisie.
Through the IMF, World Bank, GATT, and other agencies, backed up with threats of financial sanctions, the imperialist powers forced the underdeveloped countries to open up their economies and drastically scale down state intervention in their economies. Third-world countries, which had previously been allowed some protected national economic development, were opened up to plundering by the multi-national corporations and banks.
As a result, globalisation has not only produced a slump but provoked deep social crisis, already posing the threat of revolution to the ruling class in a number of countries. That is why Mahathir Mohamad, Malaysia's president, has turned against the free market, reimposing controls on capital, foreign currency exchange and imports. This is a pointer to the future. Other governments, faced with economic collapse and the prospect of revolution, will resort to similar measures to defend the national interests of the ruling class.
The leaders of the advanced capitalist countries are, at the moment, unanimous in their condemnation of Mahathir's rejection of globalisation. But when the economic crisis hits the US and Europe with its full force, they will undoubtedly move in a similar direction. They will not be able to preserve an 'open' global economy any more than they could after , when the world upswing gave way to a period of depression and intense inter-capitalist rivalry. When the US national economy faces devastation, its capitalist leaders will once again turn to controls of capital and protectionist measures against foreign imports.
This will not prevent US imperialism from continuing to preach free trade to the rest of the world. In the next period, the return to protectionism will most likely be on the basis of the main trading blocs rather than individual states. Both NAFTA and the EU, while relatively open at present, have all the reserve mechanisms needed to establish a continental siege economy behind protective walls.
The looser Asian block dominated by Japan would also raise protective walls. When the capitalist class is faced with the threat of social explosions and mass political movements, it will be forced to turn back towards state intervention to prop up big business and banks. Spending programmes will not primarily be social programmes though they will also be forced to concede temporary reforms but the 'socialisation' of big business's liabilities.
Such policies will not provide a way out for capitalism, any more than similar measures did in the Great Depression of the s. For the moment, however, the capitalist powers are still locked onto free market policies. In relation to the Asian slump, these policies, imposed through IMF intervention, have exacerbated the crisis.
The Age of Monopoly-Finance Capital
The new orthodoxy, which took over from the early s, is that the 'freeing up of markets' will overcome every problem. Clearly, this corresponded with the interests of the finance capital based in the major centres. The only real danger, it was argued, was that posed by monetary and fiscal laxity that is, excessive money supply or budget deficits. This reflects the capitalists' phobia about inflation, which above all erodes the wealth of finance capital price rises reduce the real value of borrowers' repayments to lenders.
After all, it was the high rates of inflation which infected the world economy in the late s, when the Keynesian order was crumbling, that impelled the capitalist class towards the sound money policies of monetarism and neo-liberalism. When the Asian crisis broke out with a round of currency devaluations in July , the IMF intervened on the basis of anti-inflation policies. As the price of rescue loans, the IMF demanded that the governments of Indonesia, Malaysia, South Korea, etc, should shut down insolvent banks, raise interest rates, and slash government expenditure - in other words implement a severely deflationary policy.
This was a classic case of incompetent generals fighting the last war rather than the one engulfing them.
Monetarist policies which preserved currencies as a store of value and a sound medium of exchange served finance capital well in the s and s. But in Asia today, and the world tomorrow, the capitalists face, not an imminent threat of inflation, but the reality of a deflationary spiral. The collapse of banks, a flight of capital abroad, falling prices, drastic cuts in employment and wage levels, all combine to bring about a massive reduction of liquidity in the economy. The cash flow required to finance production, trade, and all forms of commerce dries up. Government measures like interest rate increases and spending cuts can only exacerbate the problem.
Some capitalist policy-makers are now beginning to recognise this. In recent months, the IMF has begun to come under severe criticism for the policies it tried to impose on governments in South East Asia. Joseph Stiglitz, chief economist at the World Bank, complained that the IMF was pushing East Asia into a severe recession: 'virtually every American economist rejects the balanced-budget principle during a recession. Why should we ignore this when giving advice to other countries?
In effect, they are turning back to a form of Keynesianism. The continued paralysis of Japan shows that it will by no means provide a quick fix. True, a large share of it went to subsidise big construction companies to build 'roads to nowhere'. The spending packages were also undermined to some extent by the government's attempt to claw back some of the cost through increased taxation in order to prevent a further rise in the budget deficit. Nevertheless, these packages constituted the biggest Keynesian-type stimulus in modern times. But even combined with near zero interest rates, they have not succeeded in jump-starting the economy.
There is no easy way for reflationary policies to overcome the deep structural contradictions that have built up since the bubble economy of the s. Short of the liquidation of a series of banks and major industrial conglomerates, in other words allowing a slump to take its course, it is hard to see how any recovery can develop. Defying the inflation taboo of the last period, a number of US strategists have now began to advocate the unthinkable for Japan - a policy of deliberate long-term inflation. If zero interest rates have not stimulated any upturn in spending, either by companies or consumers, then their argument goes there must be a prolonged period of price rises which will effectively produce a negative real interest rate i.
If savings are thus threatened by prolonged inflation, companies and consumers will be persuaded to spend their money on goods and services. Moreover, negative real interest rates have the inestimable advantage for governments of eroding the real value of their national debt. Support for such a policy, strictly to be applied to Japan and 'lesser breeds without the law', is gaining ground in Washington and EU capitals. Support for inflation, however, remains an abomination for the US and Europe. The fears of the capitalists that spending packages will push budget deficits up to much higher levels underlines the dilemma they face in this period.
Government debt has reached historically unprecedented levels, despite a period of neo-liberal policy. The huge costs of mass unemployment and pensions for ageing populations is a big factor in this. But in order to stave off total economic collapse, governments will be forced to resort to new spending packages.
However, this will soon impose a crippling burden of debt on many states. Nevertheless, as the Asian slump spreads to the West, the US and Europe may well face the very same kind of liquidity trap as Japan. In that situation, regardless of government policies, 'market forces' will sooner or later produce new inflationary effects.
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Whether these will be effective in reviving the economy is an entirely different question. At a certain point, the spectre of inflation, even hyper-inflation, would reappear. While it can be a stimulus in mild doses, inflation is a deadly cancer in its virulent form. Capitalism will not be able to escape from its fundamental contradictions. Whatever the depth and duration of the coming world slump, however, the world economy will sooner or later, given the political weakness of the forces opposed to capitalism, move into a new period of cyclical growth.
This will not allow the capitalists to repair the damage to the system's foundations - and the ruling class will face mounting mass opposition to its rotten system.
Regulators asleep at the wheel
Clinton, leader of the world's lone superpower, is embroiled in the Lewinsky affair and is threatened with impeachment. This reflects a much deeper crisis of US capitalism's political machine, which is incapable of formulating, let alone implementing, a coherent economic and foreign policy. The political impotence of Obuchi's government in Japan reflects the crumbling of the LDP's social and political base. In Europe most of the EU leaders are fanatically committed to EMU, which will be a major casualty of the coming slump, but can agree on little else. In Germany, Kohl faces the prospect of defeat in the coming elections.
Capitalist leaders have yet to grasp the scale of the crisis facing them, let alone formulate a policy to ride it out. The real question is how did the bourgeois leaders get away with it in the last period? Governments of all complexions carried out neo-liberal policies which heaped super-profits on the rich while cutting the living standards of big sections of the working class and sections of the middle class.
In several European countries, notably Italy, France, Belgium and Spain, this provoked massive waves of strikes and social protest.
Yet governments of capitalist parties and also of pro-market 'socialist' parties were able to ride these out. Moreover, for a time bourgeois leaders were able to win support, or at least acquiescence, on the electoral level for the idea that the market is the only workable system and therefore the logic of market-forces and globalisation have to be accepted. The electoral successes of pro-market governments arose from several factors. The prestige of the capitalist class - the appearance of social and economic power - was enormously enhanced by the collapse of Stalinism.
Linked to that, the bourgeoisie was able to rely on the leaders of the traditional social democratic parties and trade unions for collaboration in carrying through pro-market policies. Crucially, however, the capitalists' ability to gain wider electoral acceptance for free-market policies depended on the growth of the economy.
This enabled them to spread a small sliver of their fabulous profits among a section of the middle class and skilled working class - who in most advanced capitalist countries form a wedge of floating voters whose choice of party determines the outcome of elections. Some even gained a small share of the booming financial and property markets, winning some acceptance for the idea that the further enrichment of the super-rich is a condition of increased prosperity for wider layers.
Deprived of their paupers' share of the fruits of growth, however, the acquiescence of the suburban 'middle class' will rapidly change to anger and opposition. There is already a deep reservoir of social discontent amongst this strata.
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They, too, have been hit by cuts in public services and are experiencing the insecurity of short-term job contracts. They cannot escape the general effects of the social alienation resulting from the dictatorship of the market - intense economic pressure on personal relations, rising crime, the commercial degradation of cultural life. In the US, but also elsewhere, a large section of middle class and skilled workers have bought shares, or are now relying on pension schemes, annuities, life insurance, etc, which depend on the performance of shares.
A major stock exchange crash would effectively wipe out their savings - provoking a tidal wave of anger against the profit system. Historically, there has never been a mechanical link between economic crisis and mass political movements. The forms of struggle, and especially the timing, cannot be predicted in advance. But one thing is certain. A deep slump will shatter the illusions in capitalism which were built up in recent years even though all the underlying features of a depression were already present. Consciousness will rapidly catch up with reality.
Capitalist leaders made no attempt to conceal their smug satisfaction when the crumbling Stalinist dictatorships were shaken by waves of mass protest after Thatcher, for instance, hypocritically championed 'people's power' in Eastern Europe, which Western leaders utilised as a cover for the restoration of capitalism. But as capitalism moves into a deep crisis, the system - like Stalinism in the s - will also be shaken by a generalised social and political crisis.
Capitalist regimes everywhere will face mass rebellion. We have seen the outlines of such movements in recent years. In Belgium in , the paedophile murder scandal provoked mass demonstrations against the rotten corruption of the state and main political parties. Workers and many sections of the middle class were drawn in. The strike wave in France evoked enormous sympathy from wide sections of society, including the middle strata and small business people.
The pit closure crisis in Britain in also mobilised an extraordinary cross-section of society in two huge mass demonstrations. This is the music of the future. It is the working class, however, which will provide the decisive forces in opposition to the effects of capitalist crisis. It remains the only force in society capable of fighting for a new social order.
Undoubtedly, economic restructuring during the last 20 years has changed the structure of the working class. Some of the former 'heavy battalions' have been greatly diminished or even disappeared. Yet new contingents which have developed on the basis of new industries and services will, in the next period, begin to move into action, organise, and come to the fore as a decisive political force. Women workers, who now make up over half the workforce in some regions, will play a significant role in this process.
During the neo-liberal period the workers in many advanced capitalist countries suffered some serious set-backs. The leaders of the social democratic parties and trade unions were incapable of defending the gains of the post-war upswing. In fact, during the s, most of them accepted the 'market' and 'globalisation' as justification for collaboration with capitalist governments in carrying through counter-reforms.
The ideological counter-revolution launched by the capitalists internationally after played a big role in fragmenting and disorientating the active sections of the working class. But the working class has not suffered the kind of shattering, historic defeat that was inflicted under fascist regimes in the s. The proletariat has preserved its capacity to struggle, as recent European movements show. This is only the beginning. The main set-back of the s and s was a pushing back of working class consciousness.
The capitalist class was only able to turn the clock back because of the political disarming of the working class. But a period of deep international crisis for the capitalist system will produce enormous struggles and a radicalisation of consciousness. What is required in addition is a programme to defend the interests of the working class and fight for an international socialist transformation. The starting point is a clear analysis of the present economic crisis and a perspective for its unfolding in the months ahead. Neo-liberalism, or 'new-liberalism', is a return to the liberal or 'free market' policies which prevailed in the mid-nineteenth century during the first period of capitalism's world-wide industrial expansion, dominated by British capitalism.
Its slogan was 'laissez-faire', or 'leave alone', and it favoured international free trade and non-interference of government in the national economy. It was based on the notion that the market directed by 'an invisible hand' is self-regulating and that the pursuit of individual self-interest ultimately produces the best outcome for everyone.
Monthly Review | The Age of Monopoly-Finance Capital
The industrial bourgeoisie used laissez-faire policies to destroy the earlier mercantilist practices, under which vested interests such as landowners, the monarchy, merchant-bankers, etc, monopolised various fields of production and trade. However, late-developers like US, German and Japanese capitalism, followed protectionist policies defending their developing industries with tariffs until they were strong enough to compete openly on world markets.
Keynesianism takes its name from the British economist John Maynard Keynes, who after the great crash of advocated increased government expending on public works and social welfare in order to stimulate demand and 'pump-prime' or jump-start the stagnant economy. His policies were hardly implemented in the s, except in the US New Deal, which was not very effective in reviving the US economy.
That was especially true in , when most of the developed world saw only a small lift in GDP in the first quarter before growth took off. However, the three years from were characterised by falling oil and commodity prices, which moderated inflation. This gave the global economy a boost it desperately needed, albeit at the expense of oil- and commodity-exporting nations — and the environment.
As gets under way, things look very different. Consumer debt has risen back to pre-crisis levels in many countries. Corporate borrowing has soared and governments, while they have reduced annual deficits, continue to sit on mountains of debt that dwarf the borrowing seen before the crisis. Another similarity with the pre period is the determination of central banks to increase borrowing costs. The speeches of central bank officials are littered with references to the need for higher rates, both to bring discipline back to borrowing and, in case another credit squeeze grips the banking sector, to have the tools to prevent a full-blown economic collapse.
Bank of England governor Mark Carney has said as much , though his remarks are tempered by threats of a no-deal Brexit. The Swedish central bank, the Riksbank, recently increased interest rates and signalled that it planned to continue on that path now that companies were reporting the largest labour shortages since Threadneedle Street has already raised its base rate from 0.
The Fed is even further ahead, having pushed rates to a level of 2. Jacking up rates to calm soaring economic growth — at least the kind of growth that can lead to inflation — is straight out of the textbooks. With only small or non-existent increases in wages above inflation, households might opt for more borrowing, or dip further into their savings to maintain consumption. Recent evidence shows they are doing neither. They did the same in the years before , when property prices began to stagnate as buyers reached their borrowing limits and car sales slowed.